Digital Economy Bill

Written evidence submitted by AP Wireless (DEB 79)

Response to the proposed reform of the Electronic Communications Code by the Digital Economy Bill

Introduction

1. As a major investor in digital communications infrastructure, AP Wireless (‘APW’) welcomes DCMS’ recognition that there is an appetite for reform of the Electronic Communications Code (‘ECC’).

2.  APW believes that access to digital communications is vitally important to citizens across the country as such technology becomes an ever more essential part of the economic and social fabric of the UK.

3. APW views ECC reform as a unique opportunity to provide a robust regulatory platform that attracts further investment in digital communications infrastructure and real estate by a multitude of stakeholders and market players.

4. Whilst APW is enthusiastic about the majority of the reforms, it is extremely concerned that the proposed change in the basis for valuing the interest that ECC beneficiaries take in ‘land’ will have a negative impact on the DCMS’ desire to see the rapid deployment of emerging technologies and the improvement of network coverage in poorly served areas. It could even make matters worse. Uncertainty and stagnation would threaten the existing coverage and make it less likely that new sites will be built [1]

About AP Wireless

5. We are the leading phone mast lease investment firm in the world. We focus on the acquisition and management of ground, tower, rooftop and in-building mobile phone mast leases and infrastructure.

6. The APW UK senior management team collects approximately 90 years of experience in the acquisition, estate management and development of digital communications infrastructure.

7. APW develops partnerships with existing mobile phone mast landlords, providing them with a lump-sum payment in exchange for the right to receive the future rent associated with the mobile phone mast on their property. AP Wireless seeks to add as many ECC beneficiaries to each site as possible, ensuring that all sites are managed to their greatest potential.

8. In 2010, AP Wireless began investing in mobile phone mast leases and has since expanded operations to 35 locations around the world. The company’s investment portfolio is comprised of thousands of leases in 14 countries across Europe, Asia, Australia, and North and South America.

9. In the UK alone, we have invested over £60 million on the behalf of our US-based equity investors Associated Partners LP and KKR & Co. LP.

The current Code regarding interests in ‘land’

10. Rents for interests in ‘land’ are negotiated freely between ECC beneficiaries and landlords, based on a market rate, under the auspices of the current Code with little conflict or dispute. The market is extremely healthy. Those covered by the ECC include mobile network operators (MNOs), utility companies and other public sector bodies.

11. The current well established valuation methodology has underpinned the successful roll out of digital communications infrastructure over the 30 year life of the industry. The transactional evidence available largely prevents the market from being abused, for instance by the demand of excessive ‘ransom’ rents.

12. The quality of the market for interests in ‘land’ used by ECC beneficiaries has attracted the deployment of capital by international investors such as APW bringing benefits to both ECC beneficiaries and site landlords.

Risks of the proposed changes

13. The changes proposed under the revised ECC will move the valuation of land from a market based valuation to a ‘no scheme’ valuation.

14. This intervention into the market will introduce uncertainty, risk and tension between ECC beneficiaries and landlords. Landlord cooperation and goodwill is key to a sustainable, efficient and well maintained network.

15. The ‘no scheme’ valuation principle was examined in detail by the Law Commission and rejected. It was, therefore, a surprise to see the ‘no scheme’ principle proposed in the Bill.

16. If the aim of the changes is to bring down MNO’s overhead costs then this intervention will have little impact as site rents represent only around 1.4% - 3.6% of the MNO’s total operating costs. [2]

17. Adoption of the ‘no scheme’ valuation is likely to increase the cost to ECC beneficiaries in terms of legal costs incurred dealing with valuation and related disputes under the new Code.

18. Quite simply, landlords will not make sites available, or renew agreements, if the returns are not high enough and the proposed changes threaten the financial viability to landlords of hosting an ECC beneficiary.

19. That the ECC beneficiaries use the new valuation basis simply to reduce their overhead costs whilst there is no guarantee that additional network deployment will be stimulated.

Summary & proposed amendment to the Digital Economy Bill

20. We believe that the recommendation by the Law Commission to preserve the current successful market environment regarding the v aluation of interests in ‘land’ 3 will facilitate the continuation of a market that has served the UK telecoms sector well for over 30 years.

21. The proposed new ECC provides increased rights for ECC beneficiaries and we agree with this approach. We are happy to see a proposed valuation methodology that addresses the issue of ‘ransom’ rents.

22. The ECC, as currently drafted, reducing the value of private property interests, risks damaging the reputation of the UK amongst the UK and international investment communities.

23. APW proposes that the Digital Economy Bill amends s.106 of the Communications Act 2003 (http://www.legislation.gov.uk/ukpga/2003/21/section/106) to have the effect that an organization that holds land and property rights for the sole purpose of making those available to providers of electronic communications networks may itself be eligible to apply to OFCOM to become a beneficiary of the Code. Our proposed wording is as follows:

s. 106 Communications Act 2003 in its current form:

 (4)         The only purposes for which the electronic communications code may be applied in a person’s case by a direction under this section are-

(a) the  purposes  of  the  provision  by  him  of  an  electronic  communications

network ; or

(b) the purposes of the provision by him of a system of conduits which he is

making available, or proposing to make available, for use by providers of electronic communications networks for the purposes of the provision by them of their networks.

S.106 Communications Act 2003 with AP Wireless proposed amendment:

(4)         The only purposes for which the electronic communications code may be applied in a person’s case by a direction under this section are-

(a) the  purposes  of  the  provision  by  him  of  an  electronic  communications

network ; or

(b) the purposes of the provision by him of a system of conduits which he is

making available, or proposing to make available, for use by providers of electronic communications networks for the purposes of the provision by them of their networks.

(c) t he purposes of the provision by him of a collection of lands or p roperty rights the sole purpose of which is to hold such lands and rights for the benefit and use by providers of electronic communications networks  to enable the proper and  efficient provision of their networks.

APW’s Investment Partners

1. Associated Partners LP is an investment and operating partnership that captures attractive opportunities in infrastructure, telecommunications, internet/media, and related technologies targeting long-term, risk-balanced, returns within the accelerated pace of technological, industrial, regulatory, and capital market changes. http://www.associatedpartnerslp.com/

2. KKR & Co. LP is a global investment firm that manages investments across multiple asset classes, including private equity, energy, infrastructure, real estate, credit strategies and hedge funds. As an investor with an industrialist vision, KKR aims to generate attractive investment returns by following a patient and disciplined approach, employing high-quality people, pursuing the highest standards of excellence, and aligning our interests with those of all our investment partners. http://www.kkr.com/

October 2016


[1] Modelling the Economic Impacts of Alternative Regimes – Nordicity – Oct 2013 - 31

[2] Modelling the Economic Impacts of Alternative Regimes – Nordicity – Oct 2013 – 166

[2] 3 Report of the Law Commission ‘The Electronic Communications Code’ (Law Com No. 336) – Paragraph 5.83

 

Prepared 1st November 2016